BoomStartup: The Shift towards Mentorship-Driven Investments
The following is a guest post from John E. Richards. John is an active entrepreneur and angel investor. He recently cofounded BoomStartup, a mentorship-driven investment program. John shares his thoughts on being an angel investor, mentor, and entrepreneur here.
When I first heard about mentorship-driven investment programs like TechStars and Y Combinator, I instantly knew that they were on the right track. Most of the success in my career grew out of heavily mentored situations. So, when I first learned in 2008 about TechStars entering its second season in Boulder Colorado, I had a strong desire to launch a similar effort in Utah.
Utah is a tech center in its own right, with its talented, highly educated, and affordable employment base. This is the region that brought us Novell, WordPerfect, Altiris, and Omniture. Utah is so tech-centric that Adobe and Microsoft are now expanding operations here.
As an entrepreneur, angel investor, and professor of entrepreneurship (Brigham Young University), my experience has taught me that mentoring is the key ingredient in a magic formula for helping talented young entrepreneurs to reach their full potential. Young entrepreneurs can avoid countless, career altering mistakes if they are mentored well.
In order to start BoomStartup on the right path, I first contacted the founders of Y Combinator and TechStars (David Cohen of TechStars was particularly helpful). Next, I contacted web-savvy angel investors, found a cooperative landlord, worked with local government, and lined up entrepreneur-friendly law and accounting firms. My goal was to launch during the summer of 2009. The recession delayed our launch to 2010.
The delay proved fortuitous. While I waited to launch, a few people I had approached with my idea, launched a mini-version of what I wanted to do. However, they lacked the absolute requirements of any mentorship-driven investment program:
- A great entrepreneurial team with a strong business/sales leader and a strong tech leader.
- Minimum capital tied to common equity.
- Free rent and other in-kind services.
- A massive committed mentoring pool.
Their small, government-lead effort also lacked an “entrepreneur-comes-first” mentality, and as a result, it failed. This failed attempt reminded me of how important a massive overdose of mentoring is.
BoomStartup (a name derived from the book “Boomstart: the Five Super Laws of Entrepreneurial Marketing”) started with a fairly strong network and support. We had a law firm that worked free, free rent at the best tech building in the state, 10 investors and about 40 mentors to supply curriculum, training, and hands-on mentoring.
We launched on May 17, 2010, and on the very first day, one of the companies called Voycit told one of the mentors that it wanted to change its name to iCount, and that it had a 6-month plan to acquire the icount.com domain name. The mentor, Omniture co-founder John Pestana, responded, “I know who owns that. Hold on, let me make a call.” A couple hours later, the deal was done. News of that quick deal spread rapidly and we were off to the races.
We had planned to start with a very rigid, full curriculum of training sessions. However, this devolved into a looser plan with only one fixed time slot each week where we would bring in an expert on a topic that was a good fit for our companies. Our large network filled these training spots, and everyone was universally supportive. Mentors who gave unusually large quantities of time also found immense personal satisfaction.
BoomStartup completed its first year on September 10 with a “Demo Day” in Park City, Utah. It was wildly successful. About 200 venture capitalists, angel investors, other accredited investors and institutions, and observers, enjoyed a first-class day. As a direct result of that day, we think that at least 7 of the 10 companies (now negotiating term sheets with investors) will ultimately be funded. Two or three companies are now triple oversubscribed on their seed rounds.
BoomStartup has revolutionized my venture life. I look back at past angel investing techniques and now realize that they simply don’t work.
The following is a list of the most striking contrasts of how my investment practices have changed:
- The Old Way: Raise $250,000 to $800,000 on the first business model. Half the cash gets squandered, and founders persist with doomed business models because they can.
- The Right Way: $15,000 until they take 1 to 3 pivots to the right business model. The constraint breeds creativity. It’s an amazing process.
- The Old Way: Product-focused effort that gets to a robust beta or Version 1.0 before truly approaching a customer in a sales situation.
- The Right Way: Get out of the building and talk to users and customers, often with a conceptual mockup, finding out if the customer will buy and what they will pay. The buzz saw of the first customer contact is an eye-opener, and it needs to happen very early. Then, once the model is nailed, build a minimum viable product, be flexible to customer input, and then you might be ready to scale it.
- The Old Way: With early excess cash, be frugal but if you need to spend, then spend and take care of business. For instance, you pay software engineers because it’s easier.
- The Right Way: Make the top tech partner a true partner with at least 20% ownership in the deal. No salaries.
- The Old Way: We love the idea, so the team is important but when we love the idea we settle for compromises with the CEO and main founding team. We invest large sums of money hoping the CEO and management team are going to work out.
- The Right Way: The CEO is critical for raising money, and any problems there get magnified when the program is over. The CEO must be the right person. Period. Settle here and you kill the deal. The magic here is that we invest minimal cash and then we get to know them and they get to know us, and we know the strengths and weaknesses. Exponentially better situation in terms of knowing the team’s likelihood of being the right entrepreneur that will “go until…” no matter what.
I see hundreds of pitches a year by startup entrepreneurs. Most often the ideas are such bad business opportunities that nothing else matters. In BoomStartup, the ideas are filtered – they are all good ideas. When the practice pitch sessions start, it is invigorating to like every idea and focus on finding the right business model. We do not have to worry about the core business opportunity.
BoomStartup’s first year has been a fantastic experience. We are now gearing up for 2011, which will include a year-round hosting of regional tech networking meetings to keep the fire alive.
About John E. Richards
John E. Richards is an active entrepreneur and angel investor, focusing on all types of businesses and locales but primarily on Internet and software companies headquartered in the Wasatch Front area of Utah. He often mentors entrepreneurs on a regular basis, employing the combination of his experience and teaching skills to help new ventures achieve their goals.
He was president of a publishing company in Seattle, Washington for several years and later started a company that helped port that industry to the Internet, which eventually led to an initial public offering and multi-billion-dollar valuation on the NASDAQ stock market (InfoSpace, Inc.).
John recently co-founded BoomStartup, a mentorship-driven investment program patterned after Y-Combinator and TechStars. In this program, multiple tech startup companies are mentored and provided capital.
He is an associate professor at Brigham Young University in Provo, Utah, teaching graduate and undergraduate courses in entrepreneurship and venture finance in the Marriott School of Management and the School of Technology. At BYU he also serves as Associate Director over Technology Entrepreneurship of the Rollins Center for Entrepreneurship & Technology.
John and his family reside in Provo, Utah.
How do you find and hire a sales leader who can thrive in today’s rocky selling environment. Expert Amy Volas lays it out here.